Attorney Fee Deferral: Take Your Contingent Fee Across Years, Not in One Tax Year
You won the case. The check is coming. Your share is $1.5M, $5M, $15M. Take it in one tax year and the federal top bracket plus state plus self-employment plus net investment income tax shave 45-50% off the top. There is a well-documented way to defer that fee across 5-30 years through a structured settlement funded by a fixed annuity from a highly rated life insurer.
Childs v. Commissioner, 103 T.C. 634 (1994), aff'd without published opinion, 89 F.3d 856 (11th Cir. 1996), is the leading case: the Tax Court held that attorneys who agreed before settlement to take their fees as periodic payments were not taxed on the lump sum up front. The IRS has never issued an acquiescence in Childs, and in Dec. 2022 its Chief Counsel published a memo (AM 2022-007) arguing Childs does not protect a differently built arrangement. Done correctly and before the fee is earned, the structure sits on the Tax Court's holding and the constructive-receipt rules of §451 and Treas. Reg. §1.451-2.
How it works
- Before settlement is fully papered, your fee agreement is restructured so the defendant (or settlement fund) directs payment of your fee to an assignment company instead of you.
- The assignment company uses the cash to purchase a fixed annuity from a highly rated life carrier.
- You are paid over your chosen schedule: 5 years, 10 years, 20 years, lump-then-monthly, or custom. The assignment company owes you the payments and funds them with the annuity it owns; your payments depend on the assignment company and the insurer behind that annuity.
- You recognize ordinary income only as payments arrive. No constructive receipt because you never had control of the fee in year one.
What is the tax bill on your contingency fee going to be?
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
The key word is timing. The structuring must happen before you have a right to the fee. Once you've taken constructive receipt, the deferral is gone.
The math: $3M contingent fee, plaintiff attorney
The $540K California number is real and recurring. I've structured 7-figure fees for solo plaintiff attorneys, mass tort partners, and personal injury firms in California, Texas, New York, Florida, and a dozen other states. The federal §453-via-Childs deferral works identically; only the state-rate delta changes.
When the fee deferral fits
- Contingent fee $750K+ (carrier minimums; ideal $1.5M+)
- Pre-settlement structuring (must paper the structure before you have a right to the fee)
- Defendant or settlement administrator willing to direct payment to the assignment company (most plaintiff-side defendants in major cases routinely do this)
- You don't need the full fee at closing for an urgent business or personal use
When it doesn't
- Fee already paid to you or to your firm trust account (too late)
- Fee under $500K (math doesn't justify structuring)
- Fee will be split among many partners with conflicting schedules (each partner needs their own structure)
- Class-action mass tort fees with already-finalized distribution (sometimes structurable, often not)
Common situations I structure
- PI / mass tort solo or small firm: single big case ending
- MDL / class-action lead counsel: bellwether fees
- Employment lawyers: discrimination, wrongful termination settlements
- Securities litigation: opt-out class fees
- Wage and hour class: California PAGA, FLSA class fees
- Mesothelioma / product liability: large punitive damage components
How I work
Hans Goldstein. I structure attorney fee deferrals through a brokerage firm that places them with highly rated life insurers (A or better by A.M. Best or equivalent). I'm licensed in California (Insurance License #4273294) and work nationally on Childs structures.
Free 15-minute fit-check call. Bring your fee estimate, expected settlement date, defendant's counsel name, and target payment schedule. I model the lump-sum vs structured side-by-side. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
Important timing note: If your case is close to settlement, call me before you sign the settlement agreement. The structure has to be in the settlement paperwork, not added after.
Frequently asked
Q: Does my client need to know? A: The defendant or settlement administrator needs to agree to direct your fee to the assignment company. Your client's net is unaffected. Whether you tell your client about the structure is between you and your fee agreement.
Q: Can I defer just part of the fee? A: Yes. Common structure: take 30-50% at closing for immediate needs, defer the rest. Optimizes tax bracket reduction.
Q: What if the defendant won't agree to direct payment? A: Defendants in most modern cases, especially institutional defendants, do this routinely. If yours won't, sometimes the settlement administrator can. Worst case, the deferral may not be available for that particular settlement.
Q: How does Childs work with state attorney fee splits? A: Childs is a federal authority. State income tax follows the federal treatment in nearly every state. State-specific quirks exist in a few states (e.g., California Code of Civil Procedure on attorney fee allocation in PAGA matters); we work through those case-by-case.
Q: Is this aggressive tax planning? A: Not when it is built the way Childs was: the fee is set up as periodic payments before it is earned, and you hold only an unfunded, unsecured right to those payments (Treas. Reg. §1.83-3(e)). The IRS's own 2022 memo (AM 2022-007) targets arrangements that depart from that pattern, such as cash handed to a third party to invest, or loans against the deferred fee. Keep it plain and have your tax counsel review the documents.
Find out what your sale is really going to cost you in tax, and what you can do about it
No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
Find out what your tax bill actually looks like before you sell, including the parts your CPA may not raise until the return is already being prepared.
Most people find out what they owe after the sale closes, when nothing can be changed. A short conversation now tells you the number, which layers apply to your situation, and which options are still open while the sale is still in front of you.
- What you will actually owe: federal, the 3.8% surtax, recapture and your state
- Which of those layers you can still do something about
- Whether spreading the sale changes the number in your case
Hans Goldstein · 213-414-2808 · Hans Goldstein: Tax & Exit Planning · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Educational. Not tax or legal advice. Plaintiff attorneys: structure must be in the settlement paperwork before constructive receipt. Talk to me before signing.
Run your specific numbers
The calculator runs your sale through real 2026 federal + state tax brackets and shows §453 savings vs lump sum side-by-side.
Run the calculator → 213-414-2808